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TSR Wiki > Study Help > Subjects and Revision > Revision Notes > Economics > Long run costs

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The long run cost curve can have a variety of shapes; it is normally drawn approximating a U-shape. Long run costs fall due to economies of scale, and then rise again with diseconomies of scale.

The minimum point of the LRAC is the minimum efficient scale of the firm.

The envelope curve shows how, when SR costs begin to rise, the firm should move along the LRAC by increasing the quantity of capital (assuming capital is the factor kept constant short run). This will move them closer to the MES and they can take better advantage of economies of scale.

A lack of finance may prevent movement along the LRAC.

Other possible shapes

The long run cost curve may have other shapes, depending on the nature of the industry:

X inefficiency

Costs may be higher and output lower than necessary. This may be for many reasons, such as the manager taking the afternoon off to go golfing or workers playing minesweeper!

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